This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Thank you for standing by. At this time, I would like to welcome everyone to the Banco Italia Chile first quarter 2023 financial results conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask an audio question during this time, simply press star followed by the number one on your telephone keypad. if you would like to withdraw your question. Again, press star one. Thank you. Rodrigo Couto, CFO, you may begin your conference.
spk01: Good morning. Thank you for joining our conference call for the first quarter of 2023. I'd like to remind you that our remarks may include forward-looking information and that our actual results could differ materially from what is discussed in this presentation. I would also like to draw your attention to the financial information included in the management discussion and analysis presentation, which is based on our managerial model, in which we adjust for non-recurring events and apply managerial criteria to disclose our income statements. Please remember that since the first quarter of 2019, we are presenting our income statement in the same manner as we do internally. This managerial financial model reflects how we measure, analyze, and discuss financial results by segregating, one, commercial performance, two, financial risk management, three, credit risk management, and four, cost efficiency. We believe that this form of presenting our results will give you a clearer and better view of our performance from these different perspectives. Please refer to pages 9 to 12 of our MD&A report for further details. Now our CEO, Gabriel Moura, will continue with the presentation.
spk02: Thank you, Rodrigo. Good morning, everyone. Thank you for joining us for this first quarter of 2023 conference call. Today, we will update you on our progress implementing our strategy, as well as present the highlights of our first quarter results. Starting on slide three, we are proud to tell you that from now on, the name of our bank is Itaú Chile. We have completed all the necessary formalities as of March 28, 2023. And in connection with this change, the identification code of Itaú Chile shares in the Bolsa de Santiago changes to Itaú CL as of April 24, 2023. And the ticker symbol for the American depository shares of Banco Itaú-Chile traded on the New York Stock Exchange changed from ETCB to ETCL, effective from May 1st, 2023. On slide four, we present the new composition of our board of directors, which was elected in the General Shareholders Meeting of Banco Itaú-Chile, held on April 20th, 2023. Consequently, the following seven principal members and one alternate member were appointed in accordance with the bank's bylaws. Board members Mr. Pedro Saman and Mr. Luis Octavio Bofill were appointed as independent directors. On the next page, number 5, we show the reverse stock split proposal. We will group our shares by decreasing the number of shares the bank capital is divided in a ratio of 4,500 to 1, while maintaining the amount of the banks subscribed and paying capital. Our goal with this process is to make our share price more comparable with typical share prices in the market, improving user-friendliness for investors. There will be no financial impact for investors, and no investors will cease to be a shareholder as a result of this process. The costs to the bank of compensating investors who own fractions to shares after the reverse stock split are negligible. The rules of the reverse stock split are detailed in the minutes of the January 29 Extraordinary Shareholder Meeting that approved it. We expect to complete this process by the end of May 2023. Moving on to slide six, under our customer centricity pillar, we highlight one of our initiatives to help customers to prevent electronic fraud. In this case, and because of our focus is on customer first and foremost, we are targeting banking clients and non-clients alike. We are creating content for the digital security of our customers because protecting our personal and financial information is everyone's responsibility. Our customer focus has been recognized by our clients, which made us the most recommended bank by individuals and companies in Chile. On July 7, we are proud to announce that our RAPI and Itaú partnership received the IAF Design Award in recognition of excellence in marketing design. We won the award for the launch campaign of our RAPI credit cards in the communication category. IF International from Germany is one of the world's oldest independent design organizations, and its IF Design Award is one of the most prized in the world as a hallmark of design excellence. Moving on to slide eight, we are also happy to share that we were recognized by Morningstar as the best asset managers for fixed income in Chile in 2023. we also achieved the first position in the fixed income mutual fund, according to the Salmon Awards. This achievement demonstrates our commitment to make the best products and have the best performance for our clients, while also offering ample choice through our open investment architecture. Now, let's move on to slide 9, where we show the latest functionalities of our Itaú mobile app. We have accelerated the deployment of new functionalities through our agile squads, which are continuously working on improving our app experience. We continue to rank number one in customer satisfaction and continue to develop new functionality to find different ways to make life easier for our customers. On July 10, we show that we are the bank with the largest social media following in Chile. We have worked on setting trends and developing communities in terms of content that is of interest to our current and potential customers through different platforms, such as LinkedIn, Instagram, YouTube, and TikTok. This approach has clearly worked, as we are number one across all those platforms. Let's now move to slide 11, where we show that we are one of the 10 best companies to work for in Chile, according to Great Place to Work. Therefore, we have achieved leadership in employee satisfaction as well as in customer satisfaction as the most recommended bank by customers. The progress we made in customer satisfaction and employee satisfaction as well as in our financial performance are certainly not a coincidence. It is a result of a lot of hard work put in each of those dimensions that reinforce one another of each as it improves. It took us a long time and effort to create this positive momentum, and we will keep pushing forward and building upon it. On July 12, we will address two ESG topics. On the chart on the left-hand side, we show that we have managed to systematically decrease our carbon emissions footprint. In 2022, this reduction reached 40% as a result of different initiatives, such as switching to 100% renewable energy. Despite this accomplishment, our ambition is greater, and we are committed to further reducing our carbon footprint in the next seven years. Our goal by 2030 is to reduce the impact of our non-financial carbon emissions by 42%, according to science-based target initiatives. Moving towards diversity and inclusion, I'm pleased to announce that we became the first private bank in Chile to commit to supporting United Nations Women's Empowerment Principles, which will guide our gender equity strategy going forward. Now moving to slide 13, where we present financial highlights for the first quarter of 2023. Our consolidated net income reached 78.8 billion Chilean pesos, decreasing 28.9% year-over-year. Net income in Chile decreased by 24.6% to 84.3 billion Chilean pesos. Consolidated financial margin with clients grew by 24.7%, boosted by high volumes, especially of assets and liability portfolios, as well as high average interest rates in both Chile and also in Colombia. Consolidated fee income grew by 6.9%, primarily due to higher results in financial advisory services developed in Chile and Colombia, as well as higher credit-related fees. Consolidated non-interest expense increased 6.6% year-over-year as a result of a higher inflation observed during the previous year, leaving the efficiency ratio basically stable at 49.1%. Consolidated cost of credit increased by 114.7% over the low base recorded in the first month of the year in 2022, which was positively impacted mainly by the pension fund withdrawals in Chile. When we look at our credit portfolios, we grew at 12.5% in Chile and 0.7% in Colombia in constant currency compared to March 2022. With consumer and mortgage loans in Chile and wholesale lending in Colombia as our biggest contributors. This first quarter results represents a start of our year in Chile according to our plan. Except for the financial margin with the market, as you will see later, which is a line that is a little bit less predictable. The cost of credit came in higher than expected at this point of the cycle, but within our guidance. Colombia came a little weaker than expected as a result of a more difficult market scenario there. As a result, our consolidated return on tangible equity, which was 11.4%, was below our medium-term target of a range between 13% and 14%. But should recover in the next quarter as the pressure on cost of credit subsides, financial margins with the markets improves, from this low base and we begin to see the impact on fees with our alliance on Cardiff and insurance. Moving to slide 14, we can notice that our financial margin with clients in Chile decreased by 5.9% during this quarter and increased 23.3% over the previous year. The decrease relative to the fourth quarter has to do with a couple seasonal effects, namely the low number of calendar days in this first quarter and the sale of student loans that positively impacted the Q4. Another factor was the migration of demand deposits to time deposits, which is an industry-wide trend related to higher interest rates. On slide 15, we can see that in the first quarter of 2023, our financial margins with the market was 12.4 billion Chilean pesos, which is a 74% decrease from the fourth quarter. The decrease is largely explained by 1.2 percentage points lower inflation during this period. we have been reducing our inflation exposure as inflation falls. So we do not expect further inflation decreases to significantly impact financial margins with the market. On July 16, our tensions unfit, which grew 4.2% year over year, even though they felt slightly relative to last quarter. The year-over-year growth was driven by higher financial advisory fees, as well as credit-related fees. Insurance Brokers is one of the lines where we expect a big boost from our exclusive partnership with Cardiff, which will allow us to improve penetration of non-credit-related insurance products. Here on slide 17, we present our major credit risk indicators in Chile. In the first quarter, the cost of credit was 76.5 billion Chilean pesos, which represents an annualized rate of cost of credit to the credit portfolio of 1.4%, which is within our guidance of 1.1% to 1.5%. The total NPL ratio increased by 17 basis points, and coverage declined slightly, but remained high at 156%. we are fully focused on managing this point of the credit cycle, having made the necessary adjustments to the concession and pricing policies, as well as boosted collection efforts. We believe we have the right strategy and execution capabilities for this point of the credit cycle, as well as prudent level of provisions, including additional provisions. Here on slide 18, we show non-interest expenses for the partner. which came in at a normal level after the seasonally high Q4 of 2022, as the efficiency ratio fell back to 42.9% in line of last year's. In accordance with our strategy and long-term commitment to efficiency, our non-interest expenses grew significantly below inflation over the last 12 months. The graph on the right side of the page shows that our headcount fell by 8% between 2019 and 2022, even while we have almost 300 people dedicated to IT and digital business development. Over that period, our efficiency ratio improved by 12 percentage points. That long-term view shows that we not only make significant progress in efficiency, but also relocated the bank resources towards technology and digital. Let's move to slide 19 on Colombia, where we saw a slight improvement in profits in returns relative to last quarter, despite a more difficult macro environment. Our improved team in Colombia continues to push forward with the transformation while managing the bank through a more challenging stage in the cycle. Progress continues to be most visible on the cost side, where we closed in the first quarter with 17 fewer branches, as well as a reduction of 12% in headcount year over year. On slide 20, we show that our capital and liquidity ratios are very pretty much in line with those of our main competitors. That view complements the picture that we have been showing you of the convergence of returns with those of the industry. That is to say, in the critical dimensions of profitability, capitalization, and liquidity, and may I add credit quality as well, our position is comparable to that of our main peers, which again highlights the convergence in financial strength and performance that we have achieved. On slide 21, we recap the key messages for this presentation. We started the year with a consolidated return on tangible equity of 11.4% and 13.9% return on tangible equity in Chile. While returns fell relative to prior quarters, which was expected, results were broadly in line with our plans, with the exception of financial margins with the market, which is a little bit less predictable. We expect that the coming quarters will be stronger as cost of credit pressure subsides, financial margin with the market improves from this quarter's low base, and we begin to see the impact of our alliance with Cardiff on fee income. we continue to make progress across multiple fronts, both in external dimensions of customer satisfaction, asset management performance, and ESG, as well as in key internal dimensions of employee satisfaction. We remain focused on managing through current economic cycle, having adjusted credit concessions and pricing policy. We double focus on collections as well as manage our structure market risk exposures to adjust sensitivity to interest rates and inflation. We will continue to actively manage our business as the cycle unfolds and new information comes in. Finally, we have achieved convergence with our main competitors, not only in returns, but also in financial strength more broadly, as our capital and liquidity ratios are strong in line with those of our peers. With this, we conclude the presentation that we have for you today.
Disclaimer